Determinants of fiscal distress in Italian municipalities

Wildmer Daniel Gregori () and Luigi Marattin ()
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Wildmer Daniel Gregori: European Commission, Joint Research Center (JRC)-Ispra
Luigi Marattin: University of Bologna

Empirical Economics, 2019, vol. 56, issue 4, No 6, 1269-1281

Abstract: Abstract How important is to place limits on specific categories of local public spending in order to prevent municipalities’ defaults? In this paper we consider Italian municipalities from 2000 to 2012. We use a logit model to investigate which of the main budget indicators (debt repayments, current budget equilibrium, amount of residuals and personnel costs) is relatively more important in affecting the default probability. Our results suggest that a 10% rise in the share of loan repayment over total spending leads to an increase in default probability by 2.6% on average. These findings are robust to alternative model specifications and the inclusion of fixed effects, time dummies and macroeconomic control variables. Our analysis thus shows that Italian municipalities seem to be on the default path when they are incapable to fully internalize the effects of issuing new debt today on the current equilibrium of tomorrow. To place limits on specific types of public spending seems to be relatively less important.

Keywords: Local government; Default; Local public debt; Fiscal distress; Panel regressions (search for similar items in EconPapers)
JEL-codes: H72 H74 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Working Paper: Determinants of Fiscal Distress in Italian Municipalities (2015)
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DOI: 10.1007/s00181-017-1386-3

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